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At NxtPhase Financial, one of our goals is to assist Long Island teachers in understanding the structure of their 403(b) plan. We have discovered that many teachers are unaware of the high fees hidden within their 403(b) plans.
Whether you are starting out as an educator or have been teaching for many years, you may not be that familiar with the world of 403(b)s. A 403(b) plan should be one of the 3 parts of your retirement plan: your pension, social security and your 403(b). No one knows if your pension will be enough in your retirement, and you may need another source of income; a 403(b) is a good back up. In this series, we will explain the basics of 403(b)s so you can determine if the plan you have is a good fit for you or if you have a high-fee plan that is eating into your retirement money.
If you are just starting out and do not have a 403(b) account, you must first determine what 403(b) providers are available to you through your school district. You can do this by reviewing the vendors on the OMNI website. The Plan Page on the website lists all the available vendors for your district. If your school district is unable to assist you in enrolling into a 403(b), you can give our office a call and we will be happy to help you.
When you contribute to a 403(b) plan, your contributions are deducted from your paycheck before taxes. This lowers your tax bill today and allows your savings to grow tax-free during the years you are working. Your contributions can be a set dollar amount or a percentage of your income. By using a percentage, your contributions will grow along with your salary. A great feature of automatic deductions is you never actually ‘see’ the money, so you don’t spend it. For 2022, the maximum amount you can contribute to a 403(b) is $20,500. If you're 50 years of age or older, you can contribute an additional $6,500 as a "catch-up" contribution, bringing your contribution total to $27,000.
In addition, a 403(b) plan may allow you (under certain conditions) to withdraw money from the plan while still working for your employer. Beware of these "in-service" withdrawals, however. They may be subject to both regular income tax and (if you're underage 59½) a 10% early withdrawal penalty. If you wait until after you're retired to begin withdrawing, you may be in a lower tax bracket and can possibly avoid the early withdrawal penalty imposed by the IRS. You must begin taking distributions ("required minimum distributions," or RMDs) from your 403(b) account after you reach age 72.
If you are interested in speaking with John Carbonara to review your present 403(b) plan, you can book an appointment below using his online calendar. This is a complimentary service to educate and increase awareness. We look forward to hearing from you.